Why Military Families Should Use 529 College Savings Plan

in Invest by Lacey Langford, AFC®

Saving for college can be daunting for military families, but a 529 college savings plan can help make it easier. A 529 plan is a tax-advantaged investment account that allows families to save for education expenses from kindergarten through graduate school. These plans offer a range of benefits, including tax-free growth, flexible investment options, and the ability to transfer unused funds to other family members.

In this article, I’ll take a closer look at what 529 plans are, how they work, and why they are an excellent tool for military families saving for college. Whether you’re a parent, grandparent, or anyone looking to invest in a child’s education, a 529 plan is definitely worth considering.

What is a 529 College Savings Plan?

A 529 is an investment account designed to help families save money for future education expenses, named after section 529 of the Internal Revenue Code, for its tax treatment.

States, state agencies, and educational institutions sponsor 529 accounts. They offer tax benefits to encourage families to save for college. Contributions are made with after-tax dollars, meaning they’re not deductible from federal income tax. Many states offer tax deductions or credits for contributions to their state-sponsored 529 plans.

The funds in a 529 plan can be used to pay for various qualified education expenses. The money in the account grows tax-free, and withdrawals are tax-free if used for qualified education expenses.

Reasons Military Families Should Consider 529 Plans

Military parents may find that setting up a 529 account is a particularly advantageous way to save for their children’s education. Here are some reasons why:

Creates Savings Consistency

Consistency isn’t something the military is known for, making planning for the future complex. A lot can come up, like a Permanent Change of Station (PCS), military training, or separating from the service, making saving for future education expenses challenging. A 529 account can help parents get in the habit of setting aside money for education expenses, regardless of where the military sends them or through the transitions of military life.

Additional Education Savings

While you may have the Post-9/11 GI Bill, these benefits may not cover all of your education expenses. A 529 account can help fill in the gap because your GI Bill often will only cover some of your education expenses, especially if you have more than one child. The extra savings can ensure you don’t dip into your savings or retirement funds to cover college costs.

Potential Tax Benefits

Many states offer tax benefits for contributions to 529s, such as a state income tax deduction or credit. The frequent moves you make as a military family may give you the advantage of these benefits in multiple states. You can find a listing of each state’s 529 plans at collegesavings.org.


A 529 plan can pay for a wide range of education expenses, including tuition, room and board, textbooks, and even certain K-12 expenses. This flexibility can be particularly helpful for military families who may need to cover education expenses not covered by the military’s education benefits. It’s also beneficial if you’d prefer to keep your child in private elementary, middle, or high schools to keep some continuity with the frequent school moves military children face.


With a 529 plan, parents remain in control of the account and can change the beneficiary or investment options anytime. This power can benefit military families who may need to make changes due to moves or other changes in circumstances, like a child joining the military.

Estate Planning

Your estate planning can benefit from 529s, allowing you to transfer wealth to future generations without incurring gift or estate taxes.

Investment Options

Education savings plans typically offer a range of investment options, allowing you to choose a strategy that aligns with your risk tolerance and financial goals.

Related podcast: Making Out a Plan For Your GI Bill

Qualified Expenses Covered

It’s important to note that you can only pay qualified education expenses with 529 funds. If you use the funds for non-qualified expenses, you’ll be subject to income tax on the earnings portion and a 10% penalty. You can use your account for the following qualified education expenses.

Tuition and Fees

Tuition and fees include any fees the educational institution charges, such as enrollment fees, lab fees, and course materials fees.

Room and Board

If the beneficiary is enrolled at least half-time, you may use funds to pay for on—campus or off—campus room and board expenses.

Books and Supplies

With your account funds, you can pay for any required textbooks, course materials, or other supplies needed for the educational program.

Computer Equipment and Software

Funds from your ed saving account can purchase a computer, laptop, or other necessary technology for the educational program.

Special Needs Equipment

If the beneficiary has special needs, 529 funds can purchase any equipment or services necessary to accommodate those needs.

Disadvantages of 529 College Savings Plan

While 529 college savings plans offer many benefits, you should consider some potential disadvantages before opening an account.

  1. Limited Investment Options: While 529 plans offer a range of investment portfolios, you may feel they need more investment options.
  2. Penalties for Non-Qualified Withdrawals: If you withdraw funds from a 529 plan and use them for non-qualified expenses, such as buying a car, you’ll be subject to federal income tax on the earnings and a 10% penalty.
  3. Financial Aid Eligibility: Plans are considered assets of the account owner, meaning they may impact the student’s eligibility for need-based financial aid. You can mitigate this by using your parents or grandparents as the account owner.
  4. Fees: Some 529 plans charge fees for account maintenance, investment management, or other administrative costs, which can eat into your investment returns.
  5. Potential for Investment Losses: As with any investment account, there is always the potential for investment losses. While 529 plans are generally considered a conservative investment option, you should still carefully consider your risk tolerance and investment goals before opening an account.

How a 529 College Savings Plan Works

  1. Choose a Plan: Start by researching 529 plans offered by your state or other states to determine the best fit for you. Consider factors such as investment options, fees, and tax benefits.
  2. Open an Account: Once you’ve chosen a plan, you must open an account and choose an investment portfolio that aligns with your investment goals and risk tolerance.
  3. Make Contributions: You can contribute to the account with after-tax dollars, up to the plan’s contribution limit. Many programs allow you to set up automatic contributions to make saving easier.
  4. Invest the Funds: The money in the account will be invested according to your selected investment portfolio. The funds in the account will grow tax-free as long as they’re used for qualified education expenses.
  5. Use the Funds for Qualified Education Expenses” You can withdraw funds from the account tax-free if they are used for qualified education expenses, such as tuition, fees, room and board, books, and supplies.

When Your Child Decides Not to Go to College

If your child decides not to go to college or any eligible post-secondary education institution, or you have leftover money, you have a few options for the funds in your 529 plan.

Change the Beneficiary

You can change the beneficiary of the 529 plan to another eligible family member, such as a sibling, parent, or grandparent. This way, the funds can still be used for qualified educational expenses, even if your original beneficiary doesn’t use them.

Wait and See

You can keep the account open and wait to see if your child decides to attend college or a post-secondary education institution later. The funds can stay in the account indefinitely, and there is no age limit for using the funds.

Withdraw the Funds

You can withdraw the funds, but you’ll be subject to income taxes and a 10% penalty on the earnings portion of the withdrawal. The contribution portion of the withdrawal is not subject to the penalty but it may be subject to income taxes.

How to Open a 529 Plan

To open a 529 plan, you can follow these general steps:

  1. Determine the plan you want to use: Each state offers its own 529 plan, and financial institutions manage some plans. Research the available plans and compare their features, fees, and investment options. Some states offer tax incentives for in-state residents, so consider your state’s plan as well. You can find each state’s 529 plans via CollegeSavings.org.
  2. Gather the necessary information: You’ll need to provide personal information for both the account owner and the beneficiary. You may also need to provide banking information to link a bank account for contributions and withdrawals.
  3. Fill out the application: Once you have chosen the plan and gathered the necessary info, you can complete the application. You’ll need to choose an investment option and select the contribution amount.
  4. Make your first contribution: You’ll need to make an initial contribution to the account to open it. Depending on the plan, you can use check, electronic transfer, or payroll deduction.
  5. Monitor and manage the account: Once it is open, you can monitor it and make contributions and withdrawals as needed. Keep track of the account and ensure it is used for qualified educational expenses to avoid penalties and taxes.

Where to Set Up a 529 Account

Every state offers 529 plans in the US, as well as some educational institutions and financial institutions. You can set up a 529 plan in any state, regardless of where you or the beneficiary live, although some states offer tax incentives for in-state residents.

To set up a 529 plan, visit the website of the plan you’re interested in or contact the provider directly. Some popular 529 plans and their providers include:

Costs of 529 College Savings Plans

The cost to set up a 529 account can vary depending on your chosen plan. Some plans have no enrollment fee or minimum contribution requirement. Others may charge fees for account maintenance, investment management, or other services.

Generally, fees can range from less than 0.25% to more than 1.5% of the account balance annually, depending on the plan and investment options. Some programs may also charge fees for non-qualified withdrawals, account transfers, or other transactions.

It’s essential to carefully research the fees associated with each plan before choosing one. Also, consider the impact of fees on the overall growth of the account.

Private 529 Accounts

A private 529 plan are like state-run plans. They are tax-advantaged savings plans that you can use to pay for qualified education expenses. Private 529 plans are sponsored by private colleges and universities.

Private 529 plans allow families to save for college costs at participating institutions, regardless of where they live or ultimately attend college. They offer a range of investment options, and earnings grow tax-free if the funds are used for qualified education expenses.
One of their key features is they may offer tuition guarantees or other benefits, such as priority admission or reduced tuition rates, to participants who use their plan to pay for college. However, it’s important to note that these plans are not a guarantee of admission or reduced tuition.

Private 529 Plan: CollegeWell

Pros and Cons of Private Plans

Private 529 plans can have several advantages and disadvantages, which may vary depending on the specific plan and individual circumstances. Here are some of the potential advantages and disadvantages of private 529 plans:


  1. Potential tuition guarantees: Some private 529 plans offer a guarantee on the amount of tuition they’ll cover in the future, which can provide families with certainty and peace of mind when planning for college expenses.
  2. Flexibility: Private 529 plans can be used at any participating institution, regardless of the student’s residency or location.
  3. Tax benefits: Like other 529 plans, private plans offer tax-advantaged savings, with earnings growing tax-free and withdrawals for qualified education expenses also tax-free.
  4. Contribution limits: Private 529 plans may have higher contribution limits than traditional 529 plans, allowing families to save more for college expenses.


  1. Limited options: Private 529 plans are only available at participating institutions, so families may have fewer investment options.
  2. Potential lack of portability: If a student chooses not to attend that specific college, or it stops participating in the plan, families may have to transfer the funds to a different plan, which can be a complicated and time-consuming process.
  3. Fees: Private 529 plans may have higher fees and expenses than traditional 529 plans, which can eat into investment returns and reduce the plan’s overall value.
  4. Lack of transparency: Some private 529 plans may not disclose information about their investment options or fees, making it difficult for families to compare plans and make informed decisions.

Military families should consider using a 529 college savings plan to help them save for their children’s education. The advantages of these plans include tax benefits, flexibility, control over the account, and potential estate planning benefits. Military families face unique challenges, but a 529 can help provide consistency in saving for education expenses regardless of your duty location. These plans can help fill in gaps left by GI Bill benefits. They’re also a valuable tool for military families looking to invest in their children’s future.